Month: September 2020

Categories
Governance News

Climate Change for your board.

Climate Change for your board.

Climate Week 2020 is over. But, your investors will continue to have interest in your company’s approach to Climate Change. They may:

  • Invest more in or divest (Unless investor is an index fund, in which case, see #2.)
  • Engage regarding role of climate in your strategy
  • Vote FOR or AGAINST the nominees on your director slate
  • Vote FOR or AGAINST your Say of Pay proposal
  • Submit or vote on climate-related shareholder proposals
  • Ask for additional disclosure about climate-related risk
  • Ask how your climate-change goals inform your lobbying

Investor interest in Climate Change has implications for your board’s 2020 and 2021 agenda.

Here we explore 7 ways that your board can address your investors’ interest in Climate Change by incorporating Climate Change into board agendas. We suggest using various agenda topics (from the Foresight® library of agenda topics) to do that.

1. Understand How Your Investors Use Climate Change Risk to Screen Portfolio Companies

More investors, especially long-term investors, favor companies that are more climate-risk aware. They believe such companies are likely to perform better over the long-term. They are looking for companies with climate-risk aware boards. So, more investors are using some sort of climate-risk or broader ESG screen to determine which companies to invest in, retain, or divest.

Agenda Topic: Review investor base and priorities

Include information in briefing materials and board discussion about how climate-related risk influences your investors’ (and target investors’) Invest/Divest decisions. 

Agenda Topic: Review strategically significant environmental, social and governance (ESG) risks 

This report by management elevates for board review the company’s environmental, social and governance (ESG) risks — including Climate Change. ESG factors cover a wide spectrum of issues that traditionally are not part of financial analysis, yet may have financial relevance – such as the company’s response to Climate Change. Those issue could include various topics, including, for example: product packaging, water usage, health and workplace safety policies, supply chains practices (e.g., labor, raw materials, emissions, waste).

2. Prepare for Effective Investor Engagement

Reflecting their interest in climate-related risk, investors may want to learn more about your company’s approach to climate-related risk or to encourage your company to take action to identify and more aggressively address climate change risk. Prepare!

Agenda Topic: Review annual shareholder and proxy advisory firm engagement program

Include information in briefing materials discussion about how the company’s plans to bring its climate-risk message to investors – during analyst calls, at outreach meetings with the proxy voting teams at major or investors, and in conversation with proxy advisory firms.           

3. Present a Climate- Informed Director Slate

Investors are increasingly looking hard at board composition – including looking for directors with experience that prepares them to effectively oversee climate-related risks and strategic opportunities.  

Agenda Topic: Review board composition and refreshment – including diversity

Take a look at your board. Your directors do not all need to be Climate Change experts. But, your board and company benefit from directors with relevant experience dealing with and leading through scientific challenges and opportunities in the business context. In-depth discussion of your board’s talent and needs can produce a rigorous, short- and long-term director recruiting plan designed to bring beneficial and useful climate-relevant experience and perspectives onto the board.

Agenda Topic: Recommend director development plans

If the board does not include directors who understand and can effectively converse in the boardroom and with investors about science in a business context, consider adding science-focused training to your board’s and directors’ annual development plans.

Agenda Topic: Approve director nominees for inclusion in proxy statement

The governance/nominating committee may want to describe how climate-related experience impacted nominee selection and include infomration about all nominees’ climate-related experience.   

4. Consider Whether Compensation Programs Can Incentivize Climate-Friendly Behaviors and Programs

Investors recognize that compensation programs reflect corporate priorities and drive behavior. For some companies, which may mean incorporating climate-related goals and measurements into compensation metrics.

Agenda Topic: Approve compensation philosophy

“What gets measured gets managed.” As the company advances its thinking about the role of climate change (even as a subset of Sustainability) in its strategy and operations, the compensation committee may want to incorporate climate-change or sustainability-related goals and measures into its compensation philosophy.   

 Agenda Topic: Recommend say-on-pay proposal and disclosure for inclusion in the annual proxy statement

Annually, the board explains and submits its executive compensation actions to investor scrutiny. If climate-change or sustainability metric(s) are included in the company’s compensation program, note that and explain why. And, explain how those metrics impacted executive compensation.

5. Anticipate and Respond to Shareholder Proposals on Climate Change

During the 2020 proxy season, investors filed some 140 climate-related shareholder proposals. Those proposals addressed topics such as carbon asset risk, lobbying disclosure, board oversight of climate and sustainability, greenhouse gas emissions, clean energy, plastics, and recycling, financed emissions, deforestation, water risks, and sustainability reporting.

  • The average vote FOR was 30% (up from 26% in 2019).
  • Several won majority FOR votes (up from only 1 in 2019). A proposal requesting a report on the alignment of Dollar Tree’s business strategy with constraints posed by climate change earned a 73% FOR vote.
  • Proponents withdrew about 40% of the shareholder proposals when negotiations resulted in companies committing to address the proposal’s issue.

Though the SEC’s recent rule changes may alter the shareholder proposal landscape somewhat, the overall cadence will likely remain: indication of investor concern, submission of shareholder proposal, possible submission of no-action request by company, negotiation, and, absent an agreement to withdraw, a vote on the proposal.  

Agenda Topic: Review annual meeting preparations

Late in 3Q or early in 4Q, the governance committee generally looks ahead to the next annual meeting and considers evolving issues. That discussion should cover any new or challenging topics likely to be the subject of a shareholder proposal and consideration of the value of proactive outreach.

Agenda Topic: Review shareholder proposals and approve statements in opposition

If a shareholder proposal meets Rule 14a-8’s requirements, the company may seek to negotiate withdrawal. If negotiation fails, the board may include a statement in opposition in the proxy materials (if it does not support the shareholder proposal) or a statement in support (if it supports the proposal). 

6. Consider What Investors Wants to See about Climate Change in Your Disclosure

Numerous ESG reporting frameworks have been developed by different organizations. They vary in emphasis, complexity, scope, and depth. None satisfies everyone. It is good for the board to be acquainted the board with the leading models in this space and with your investors’ climate-related disclosure preferences. Here is one example. According to Vanguard’s 2020 proxy season investment stewardship report:

  • “Vanguard expects companies to disclose to the market how their board oversees climate-related strategy and risk management. We look for companies to provide quantitative disclosure of their performance metrics and progress against goals.”
  • “A number of widely recognized industry frameworks provide useful guidelines for companies that seek to improve their sustainability disclosure. We support the framework created by the Task Force on Climate-related Financial Disclosures for disclosing strategy, risk management, governance, metrics, and targets. We expect the TCFD to continue to gain acceptance as a global standard (see the table on the next page). The Sustainability Accounting Standards Board produces useful industry-specific, materiality-oriented sustainability disclosure standards. We also support industry efforts with broad adoption, such as the Edison Electric Institute’s sustainability reporting template for U.S. electric utilities.”

Agenda Topic: Approve SEC Form 10-K

In connection with its review of the company’s Form 10-K, the board may want to consider what materials climate-change related information should be included in the Form 10-K or provided to investors in other formats, e.g., on the website, in a separate report.

7. Consider What Goals Inform Your Company’s Lobbying

Every business is subject to regulation of some sort in every jurisdiction in which it does business. That regulation can have impact on the Company’s results, reputation, strategy, product mix, and more.

Agenda Topic: Review annual report on regulatory environment

At least annually, management reports to the board (or a board committee) regarding the current and anticipated regulatory environment. That report should include information about significant company (and industry group the company supports) initiatives to influence the regulatory environment related to Climate Change.

Conclusion

Incorporting Climate Change elements into board agenda topics can improve your company’s preparedness and position with investors. It can also help your board address climate-related risk and strategic opportunities. Foresight’s agenda topic library, agenda management capabilities and curated information resources can make this approach easy for Corporate Secretaries and General Counsels.

Categories
BoardOps

BoardOps: Best Experience for All

BoardOps: Best Experience for All

A Quick Reminder: BoardOps Methodology

BoardOps is a methodology that recognizes that true agility starts at the top — with the organization’s board and the executives who work most closely with the directors. Its purpose: help the board excel at its most important product, sound informed decisions while carrying out the board’s oversight and fiduciary responsibilities. It creates the best experience for all.

BoardOps encompasses organizational processes, culture, and mindset. It integrates everyone associated with board work into a single, more automated workflow: Corporate Secretaries, General Counsel, C-Suite executives, CEOs, Lead Directors, and others. They work together toward a shared objective: improving board effectiveness and corporate performance.

BoardOps extends board meeting planning well beyond routine calendaring and rote repetition. It applies advanced technology to the entire board planning and meeting process – bringing in relevant governance regulatory requirements and investor governance policies. It prioritizes and better informs boards about their most impactful decisions.

Who BoardOps Benefits

BoardOps allows everyone who touches board work and workflows to have the best overall experience and provide the best results to others involved in the process.

Executives Benefit

BoardOps enables CEOs to gain alignment with boards on key issues that could otherwise suffer from drift or disagreement. By adopting BoardOps, CEOs can:

  • Elevate the most impactful board agenda topics
  • Provide better direction to executive teams. Better direction enables organizations to develop and deliver products and services faster than if using traditional board management methods. That speed and certainty can improve the company’s bottom line and build brand and shareholder value.
  • Attract and retain top talent. BoardOps reduces frustrating “back and forth” between management. Board-related workflows are articulated. Direction is clear.

Directors Benefit

Boards benefit from alignment with management regarding priorities. Alignment means that the boards focus more on the most impactful topics. By adopting the BoardOps philosophy, boards:

  • More regularly give and receive 360-feedback, improving effectiveness
  • Increased alignment with and responsiveness from management
  • Reduce wasted board and management time and energy
  • Reduce risk
  • Know where investors stand on myriad issues which arise in the course of board work. Then, take those views into account when making decisions.

Corporate Secretaries and Governance Professionals

Corporate Secretaries and governance professionals will find that BoardOps methodologies and advanced technology:

  • Reduces time spent on routine and repetitive tasks
  • Helps reduce human errors common in manual board workflow
  • Improves how they work, independently, with their team members, others in their organization, and others outside the organization
  • Encourages flexibility and innovation

Investors

Increasingly, investors and some regulators want to know what agenda topics boards work on and how boards are working on those agenda topics. BoardOps provides the board with a way to talk with investors about how the board works – an explainable framework that lends itself to engagement discussions.

Additionally, BoardOps is easy to explain in the governance practices section of the corporation’s annual proxy statement.

Others

Corporations may find that adopting BoardOps culture is persuasive with credit rating agencies and D&O insurers, evidencing the board and organization’s commitment to bettering governance and organizational performance.

The BoardOps Experience: Continuous Improvement Benefits All

BoardOps is an ongoing process for continuous improvement. Boards’ key work products are decisions. BoardOps focuses on improving the quality and process of this decision-making. It ensures organizational agility does not stop at the boardroom door. The BoardOps experience benefits everyone involved in board workflows and decisions.

About Foresight® by Corporate Governance Partners, Inc.

We believe better boards:
• Build more strategic companies
• Align more effectively with management on goalsValue better human capital management
• Employ more reliable financial controls and reporting
• Generate more profits
and advance a company’s commitment to:
• Ethical, compliant cultures
• Embrace inclusion and celebrate diversity, free from harassment
• Safe workplaces and products
• Consideration of environmental and social impacts in operational and strategic decisions
Therefore, we are working to transform how boards and corporate governance professionals work by building advanced technology to elevate the work of boards. Foresight’s integrated, innovative, information-centric features enable a more agile Board culture which leads to better board decision-making.

Categories
BoardOps

BoardOps: It Starts with Culture

It starts with culture. A robust BoardOps culture fosters 5 key elements: 

  1. Collaboration
  2. Automation
  3. Monitoring
  4. Measurement
  5. Continuous Improvement

Each of these elements is important. However, a BoardOps culture really flourishes when a company fosters all of them. Here’s why and how to foster each.

BoardOps Culture: Collaboration

Executives, directors, and investors often don’t agree on big (or small) issues. This disconnect is what prompted development of BoardOps! BoardOps enables the Board to work better together along with others who have a stake in board decisions.

How do these disparate groups work better together? BoardOps transcends traditional approaches to board meeting preparation and board meetings themselves. It helps these groups in the prioritization of decisions needed, improving meeting documentation, and incorporating investor views into decision-making.

BoardOps culture promotes collaboration within and beyond the boardroom by emphasizing diversity, environmental stewardship, and social responsibility in board deliberations and decision-making. Diverse boards bring diverse competencies and experiences to the board table and to board.

BoardOps Culture: Automation

BoardOps utilizes advanced technology to enhance board-related planning processes

A board’s primary product is decisions. BoardsOps looks at that decision-making process to identify bottlenecks that slow effective, quality decisions. Then, BoardOps professionals measure and identify these barriers and then leverage automation wherever possible to improve throughput.

A BoardOps culture relies on advanced technology to automate repetitive processes. Those include board planning processes, meeting documentation, and accessing relevant data. That data includes, for example, investor governance polices and voting records, company ownership, ESG issues, and peer comparisons. In addition, innovative analytics free up staff time for higher-level work and provide the board with better and more current information.

Because companies assume that these workflows are acceptable or cannot be improved, companies often fail to map them. In a BoardOps culture, corporate governance professionals, management and the board all utilize advanced technology to a much greater extent than in the past.

BoardOps Culture: Monitoring

BoardOps helps better manage key elements of board work — monitoring tasks, work in progress, and outcomes. Deliverables are identified and progressed – not lost in the shuffle or complexity that sometimes occurs around board meeting planning or meetings themselves.

Many companies spend inordinate amounts of time on board meeting preparation. A BoardOps culture can help management reduce prep time. Also, it can identify and provide the board with the most relevant information, and thereby, reduce information overload.

In addition, more efficient fulfillment of the board’s monitoring (i.e. risk mitigation) role allows more board attention to its advisory (value adding) role.

BoardOps Culture: Measurement

BoardOps uses analytics to measure board effectiveness — enabling both management and boards to increase effectiveness. Continuous measuring using analytics helps identify root causes of bottlenecks and barriers to quality decision-making. It empowers professionals to act quickly and proactively to prevent degradation of board workflow processes or diversion of resources from prioritized decisions.

Measurement starts early in the planning process; using analytics to plan appropriate emphasis on the most impactful agenda topics while meeting governance compliance requirements. The same analytics that inform the planning environment can also identify problems before they adversely impact board decision-making.

Analytics can make board, committee, and individual director self-assessments more fact-based and actionable. For example, a retrospective analysis of how the board chose to prioritize agenda topics (i.e., spend its time) in the past year can be revealing and guide planning for the following year. Analytics enable management and boards to assess how well they achieved board goals.

Analytics empower:

  • Individual directors and the board as a collective to improve performance, planning and recruitment
  • Management to improve workflows, information flows, and agenda topic prioritization
  • Investors to better understand how the board and the company approaches important topics
  • Others involved in board-related workflows (within and beyond the company) to collaborate on problems and improve board-related workflows

BoardOps Culture: Continuous Improvement

Continuous improvement is a critical element of BoardOps culture. Analytics is a valuable tool for continuous improvement.

BoardOps emphasizes the use of analytics to improve the board’s use of its time. Too often boards spend too much time on short-term Execution agenda topics (which tend to have short-term impact). Too often boards give short shrift to Strategy and Leadership agenda topics (which tend to have mid-and-long-term impact). BoardOps culture’s emphasis on analytics to promote continuous improvement can help boards better prioritize their most impactful Leadership and Strategy agenda topics.

Analytics also enable the board to meaningfully assess board composition to inform board succession planning and recruitment – both important Leadership agenda topics.  Analytics can provide insights into director tenure, skills, diversity(in its many forms).

BoardOps. It Starts With Culture.

BoardOps culture emphasizes continually improving the quality and process of this decision-making. It ensures organizational agility does not stop at the boardroom door. Moreover, BoardOps allows everyone who touches board work and workflows to have the best overall experience and provide the best results to others involved in the process.

Foresight® by Corporate Governance Partners, Inc.

We believe better boards:
• Build more strategic companies
• Align more effectively with management on goalsValue better human capital management
• Employ more reliable financial controls and reporting
• Generate more profits
And advance a company’s commitment to:
• Ethical, compliant cultures
• Embrace inclusion and celebrate diversity, free from harassment
• Safe workplaces and products
• Consideration of environmental and social impacts in operational and strategic decisions
Therefore, we are working to transform how boards and corporate governance professionals work by building advanced technology to elevate the work of boards. Foresight’s integrated, innovative, information-centric features enable a more agile Board culture which
leads to better board decision-making.

Categories
BoardOps

Agility Starts at the Top

BoardOps: Best Experience for All

BoardOps: \’bôrd ãps \ A methodology that seeks to address the rapidly changing landscape of modern Corporate Governance and business practices by incorporating Agile processes into the work of the Board of Directors. The term BoardOps combines “Board” (as in Board of Directors) and “Ops” (as in operations).

What is BoardOps?

BoardOps is a methodology that encompasses processes, culture, and mindset. It recognizes that true agility starts at the top of corporations. It starts with the board and the executives who work most closely with the directors. Its purpose: help the board excel at its most important product, sound informed decisions, while carrying out its oversight and fiduciary responsibilities.

BoardOps does that by better integrating everyone associated with corporate board work. Corporate Secretaries, General Counsel, C-Suite executives, CEOs, Lead Directors, and others work together in a single, more automated workflow. Their shared objective: improving board effectiveness and thereby, corporate performance.

BoardOps prioritizes and better informs corporate boards about their most impactful decisions. It extends board meeting planning well beyond routine calendaring and rote repetition by applying advanced technology to the entire board planning and meeting – bringing in relevant regulatory governance requirements and investor policies.

BoardOps benefits the board and everyone involved in the greater board workflow and decisions.

Why Haven’t Corporations Already Adopted BoardOps?

Many corporations embraced the benefits of DevOpsi and Agileii ways of working. But, they stopped short of taking these approaches into the boardroom. Boards have been used to working certain ways and were reluctant to change. With BoardOps, boards now have a roadmap for change and improvement. That improvement is especially important and necessary as boards take more active approaches to their work, evolving from their traditionally more passive approach.

How BoardOps Can Improve Corporations

BoardOps is a way of working that recognizes that true agility starts at the top. It helps the corporate board excel at producing its most important product – quality, informed decisions – as it carries out its significant and ever evolving oversight and fiduciary responsibilities.

  • Agile corporations can respond quickly to rapidly changing competitive landscapes and macro environments, such as COVID-19, and the resultant economic upheaval.
  • Agility must permeate all levels of the corporation, but it is especially beneficial in the boardroom. Why? Because a board is a team of equals.
  • BoardOps bridges the divide between Agile processes implemented within a corporation and the processes that guide decisions-making at that corporation’s highest level. Starting with the board can be the first step to realizing Agile’s benefits for the entire corporation.

What BoardOps Does So Well

BoardOps is a broad term. More specifically, BoardOps encompasses processes, culture, and mindset to use advanced technology to:

  • Make the board’s work more visible, especially its decision-making process, and understandable internally (to management) and externally (to investors, rating agencies, etc.).
  • Communicate transparently and proactively with investors, employees, and stakeholders.
  • Foster continuous improvement in board support and board effectiveness using monitoring and measurement. Analytics are a highly effective tool for improving board effectiveness – assessing how boards set priorities and evaluating board composition.
  • Create a culture of experimentation: acknowledge and address mistakes, then apply learnings to produce continuous improvement.
  • Embrace social and economic change as a catalyst for competitive advantage.
  • Prioritize and focus on the strategic decisions that best position the organization to carry out its purpose and for long-term business sustainability.
  • Reduce the amount of work in progress prior to final board decisions.
  • Articulate and refine board-related workflows that lead to and support board decisions Improve information flow to the Board.
  • Identify and remove bottlenecks in decision–making using advanced technology.

Using advanced technology in these ways can greatly elevate board effectiveness and, consequently, corporate performance.

In sum: Agile board. Agile organization. Agility starts at the top.

Next Time: How BoardOps Benefits Executives, Boards, Corporate Governance Professionals, Investors, and Others

i From www.guru99.com What is DevOps? “DevOps is a software development method which focuses on communication, integration, and collaboration among IT professionals to enable rapid deployment of products. DevOps is a culture that promotes collaboration between Development and Operations Team. This allows deploying code to production faster and in an automated way. It helps to increase an organization’s speed to deliver application services. It can be defined as an alignment of development and IT operation.

ii From www.guru99.com What is Agile? “Agile Methodology involves continuous iteration of development and testing in the SDLC process. This software development method emphasizes on iterative, incremental, and evolutionary development. Agile development process breaks the product into smaller pieces and integrates them for final testing. It can be implements in many ways, including scrum, kabanm Scrum XP, etc.

Categories
Board Effectiveness

More alike than different.

Private company governance does not receive as much press attention as public company governance. But governance is no less important to private company stakeholders. This is especially true in the midst of the COVID crisis. What private company boards do have in common with public company boards are their three priorities: Leadership, Strategy and Execution. These remain constant even in the face of COVID. Just the emphasis changes.

Priority 1. Leadership: Leadership decisions are mostly long-term. Example: CEO selection has long-term (10-15 year) impact. The board strives to select a CEO who can serve 10+ years (even if average CEO tenure is ≈7 years). Other Leadership decisions include, e.g., executive succession planning, CEO evaluation and compensation, board leadership structure and selection, board composition, and policies that establish corporate culture.

Not surprisingly, private company board leadership structures (e.g., combine or separate Chair and CEO) and governance practices (e.g., committee structure) take many forms. Leadership decisions can be challenging but are critical. Family-owned companies face generational transitions. Start-ups outgrow founders.   

Priority 2. Strategy: Srategy decisions tend to have a medium-term time horizon, i.e., 3-5 years. Examples of Strategy decisions: plans for growth, expansion into new businesses or geographies, reviewing the company’s biggest risks/mitigation, maintaining vibrancy of current products, and new product or service offerings.

 A company’s expresses its strategy in its strategic plan. Management and the board benefit if they align on the approach to plan development in advance of submission for board review. During board review, it’s helpful to discuss current and targeted investors’ expectations regarding strategy and corporate governance to ensure the plan reflects those.   

Priority 3. Execution: These agenda topics focus on tactics and results. Their time horizon is short-term — this quarter, this year. Typical Execution agenda topics include CEO’s Report, CFO’s Report (esp. profitability and disclosure), business continuity plan, updates to corporate governance guidelines or committee charters, and review of the company’s most significant risk/mitigation.  

Private Company Boards and Management Add Value with Advance Agenda Planning 

If agenda overemphasize Execution topics, they skew the company’s time-horizon to the short-term, starving the Leadership and Strategy agenda topics that generate long-term success. This often occurs if management sets agenda meeting by meeting, without having aligned with the board on the its goals for the year.

The Foresight® Advantage for Private Companies

Foresight’s annual agenda planning feature can help avoid misspent board and management time as well as highlight gaps that should be addressed to gain the maximum impact from the board’s efforts. The three categories described above form the basis of Foresight’s agenda hierarchy – and the organizing principles for Foresight board management software. It provides private companies a powerful tool for planning board agenda for the year and then for each meeting as it approaches – and managing the board’s time especially in times of crisis.

Private companies can use Foresight’s analytics to evaluate board effectiveness and adjust future agenda to increase the focus on impactful topics and address unexpected events. One private company board may find it must pivot quickly to address COVID-19 impacts. Another may find it urgently needs to address diversity, equity, and inclusion in its workforce. Another might find it should be spending more time on CEO succession, a Leadership question. Increasing the frequency and depth of board focus on these impactful agenda topics can be achieved by reducing time devoted to other topics or adding more meeting time. Management and the board can set and reset priorities, rather than choosing agenda topics that seem topical before each meeting (which tend to be short-term, Execution topics). Using Foresight to analyze and report board priorities makes priorities more transparent.